MARKET WATCH: Energy prices decline in dull markets
Energy prices continued to slip Dec. 16 in ho-hum markets.
“With the strong set-back in gold during the week, Brent is now out-performing not only West Texas Intermediate for the year, but also gold. Passive length in a front month rolling position in US natural gas is printing so far this year a negative return of 42.5%,” said Olivier Jakob at Petromatrix in Zug, Switzerland.
“The crude oil correlations have been rising back over the last few weeks against the euro-dollar [valuation] but are declining vs. Standard & Poor’s 500 Index,” he said.
Jakob noted the S&P 500 “was under pressure during the week, losing 2.9% while the NASDAQ was down 3.5%. For the year, the S&P 500 is down 3.02% and the NASDAQ down 3.68%. The global picture has not changed from last week: among the main indices; the US markets are outperformers while the other indices average [a loss of] 16.9% for the year.”
He further reported, “The European 10-year bond yields were generally weaker during the week, except for Italy who had a small increase. The Italian 10-year bond yield is still slightly above the unsustainable 7% and at a 5% spread to the German bond yields. It is also important to keep in mind that 17.9% (€139 billion) of the European Financial Stability Facility funds are supposed to come out of Italy.”
Jakob said, “There are not many new things to write about the Europe crisis apart that there is more conviction that Europe will be in a formal recession in 2012. On Dec. 16, Fitch the French-owned rating agency reaffirmed the AAA of France and put Belgium, Spain, Italy, Slovenia, Ireland, and Cyprus on credit watch. The risk of the S&P downgrade of France is still an overhang on the market. After having made so much noise about potential downgrades, the S&P needs now to come out of the closet and announce whether it downgrades France or not. Until then, trading on the long side will carry strong overnight risk.”
Trading will slow toward the end of the week with some markets closing early Dec. 23 and remaining closed Dec. 26 for the Christmas holiday.
In other news, analysts in the Houston office of Raymond James & Associates Inc. said, “Adding more uncertainty to the ever fragile global markets, we have a 27-year-old in charge of a nuclear program and communist country” as Kim Jong Un apparently has taken over power in North Korea following the death of his father Kim Jong Il.
“Meanwhile, US politicians continue to fight over the extension of the payroll tax cut, leaving many to wonder if they are going to continue to negotiate into the holidays while we are in the relaxing comfort of our home,” Raymond James analysts said.
Energy prices
The January contract for benchmark US light, sweet crudes dropped 34¢ to $93.53/bbl Dec. 16 on the New York Mercantile Exchange. The February contract fell 32¢ to $93.75/bbl. On the US spot market, WTI at Cushing, Okla., remained out of step with the front-month futures contract, down 34¢ to $92.88/bbl.
Heating oil for January delivery declined 2.2¢ to $2.80/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.07¢ but closed essentially unchanged at a rounded $2.49/gal.
The January natural gas contract was unchanged at $3.13/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also was unchanged at $3.06/MMbtu.
In London, the new front-month February IPE contract for North Sea Brent decreased 25¢ to $103.35/bbl. Gas oil for January lost $4 to $894.25/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined $1.03 to $103.57/bbl. So far this year, OPEC’s basket price has averaged $107.50/bbl.
Contact Sam Fletcher at [email protected].
About the Author
Sam Fletcher
Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.